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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
Commission File Number 000-25991
DAG MEDIA, INC.
(Exact name of small business issuer as specified in its charter)
New York 13-3474831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
125-10 Queens Boulevard
Kew Gardens, NY 11415
(Address of principal executive offices) (Zip Code)
(718) 263-8454
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes |X|
No |_|
As of August 10, 1999, there were outstanding 2,976,190 shares of the
issuer's Common Stock, $.001 par value.
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<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
TABLE OF CONTENTS
Part I - FINANCIAL INFORMATION
- ------------------------------
Page Number
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Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheet at June 30, 1999...........................2
Consolidated Statements of Operations for the
Three and Six Month Periods Ended June 30, 1999
and 1998..............................................................3
Consolidated Statements of Cash Flows for the
Six Month Periods Ended June 30, 1999 and 1998........................4
Consolidated Statement of Shareholder's Equity
at June 30, 1999......................................................5
Notes to Consolidated Financial Statements............................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................9
Part II - OTHER INFORMATION
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Item 1. Legal Proceedings....................................................17
Item 2. Changes in Securities and Use of Proceeds............................17
Item 3. Defaults Under Senior Securities.....................................18
Item 4. Submission of Matters to Vote of Security Holders....................18
Item 5. Other Information....................................................18
Item 6. Exhibits and Reports.................................................18
SIGNATURES....................................................................19
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
June 30, 1999
-------------
Assets
Current assets:
Cash and cash equivalents $ 7,174,054
Trade accounts receivable, net of allowance for doubtful
accounts $382,475 1,790,397
Directories in progess 661,469
Other current assets 97,265
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Total current assets 9,723,185
Fixed assets, net of accumulated depreciation $28,866 79,379
Goodwill and trademarks, net of accumulated amortization $6,755 1,344,225
Other assets 9,093
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Total assets $11,155,882
===========
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 32,446
Advanced billing for unpublished directories 1,737,420
Income tax payable 264,906
Deferred tax payable 321,000
-----------
Total current liabilities 2,355,772
Shareholders' equity:
Preferred shares - $.01 par value; 5,000,000 shares
authorized; no shares issued $ --
Common shares - $.001 par value; 25,000,000
authorized; 2,976,190 issued and outstanding 2,976
Additional paid-in capital 7,823,069
Retained earnings 974,065
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Total shareholders' equity 8,800,110
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Total liabilities and shareholders' equity $11,155,882
===========
The accompanying notes are an integral part of these financial statements
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net advertising revenues $ 282,909 $ -- $2,268,781 $ 986,612
Publishing costs 35,970 -- 330,769 226,557
---------- ---------- ---------- ----------
Gross profit 246,939 -- 1,938,012 760,055
Operating costs and expenses:
Selling expenses 45,697 -- 619,782 335,042
Administrative and general 183,212 213,907 501,999 363,802
---------- ---------- ---------- ----------
Total operating costs and expenses 228,909 213,907 1,121,781 698,844
Interest income, net 40,959 723 43,062 1,309
Earnings (loss) from operations before provision for income taxes
and equity income 58,989 (213,184) 859,293 62,520
Provision (benefit) for income taxes 12,913 (108,000) 405,913 30,000
Equity (loss) in earnings of affiliate -- 2,566 (2,654) 11,333
---------- ---------- ---------- ----------
Net income (loss) available to common shareholders $ 46,076 $ (102,618) $ 450,726 $ 43,853
========== ========== ========== ==========
Basic and diluted net income per common share outstanding $ 0.02 $ (0.08) $ 0.15 $ 0.04
========== ========== ========== ==========
Basic and diluted weighted average number of common
shares outstanding 2,976,190 1,250,000 2,976,190 1,250,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 450,726 $ 43,853
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization 17,580 9,053
Change in allowance for possible losses on accounts receivable (68,903) 41,209
Changes in operating assets and liabilities -
Accounts receivable (68,523) (78,598)
Directories in progress (38,134) (76,540)
Deferred tax asset 21,000 21,000
Other current and noncurrent assets (64,657) --
Dividend receivable (14,050) --
Accounts payable and accrued expenses (54,097) (59,775)
Advanced billing for unpublished directories (94,921) 65,747
Income and deferred taxes payable 56,906 9,000
---------- ----------
Net cash provided by operating activities 142,927 (25,051)
---------- ----------
Cash flows from investing activities:
Investments in affiliates, net 41,875 (36,174)
Acquisition of affiliate 41,875 --
Purchase of fixed assets 179 (1,077)
---------- ----------
Net cash provided by (used) in investing activities 83,929 (37,251)
---------- ----------
Cash flows from financing activities:
Proceeds from IPO, net of expenses 6,431,790 --
Repayment of loans to shareholders, net 205,223 24,841
---------- ----------
Net cash provided by financing activities 6,637,013 24,841
---------- ----------
Net(decrease) increase in cash 6,863,869 (37,461)
Cash and cash equivalents, begining of period 310,185 132,741
---------- ----------
Cash and cash equivalents, end of period $7,174,054 $ 95,280
========== ==========
Supplemental Cash Flow Information:
Acquisition of affiliate:
Goodwill and trademarks acquired.................................................. $1,350,981
Fair value of other net assets acquired........................................... $ 41,875
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six Months Ended June 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 .......................... 1,250,000 $ 1,250 $ 150 $ 523,339 $ 524,739
Acquisition ......................................... -- -- 1,392,855 -- 1,392,855
Sale of common stock in public offering,
net of expenses .................................. 1,726,190 1,726 6,430,064 -- 6,431,790
Net income for the six months ended June 30, 1999 ... -- -- -- 450,726 450,726
--------- ---------- ---------- ---------- ----------
Balance, June 30,1999 ............................... 2,976,190 $ 2,976 $7,823,069 $ 974,065 $8,800,110
========= ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
Item 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of DAG Media, Inc.
and subsidiaries ("DAG" or the "Company") included herein have been prepared by
the Company in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However, in
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the Company's audited financial statements for the years ended
December 31, 1998 and 1997 and the notes thereto included in the Company's
Registration Statement on Form SB-2. Results of operations for the interim
period, are not necessarily indicative of the operating results to be attained
for the entire fiscal year.
2. REVENUE RECOGNITION
Advertising revenues are recognized under the point-of-publication method, which
is the method generally followed by publishing companies. Internet related
advertising revenue is recognized at the time the ad appears in the online
version of the relevant directory.
3. COMMITMENTS AND CONTINGENCIES
In March 1999, the Company entered into an employment agreement with Assaf Ran,
its president and chief executive officer. Mr. Ran's employment term initially
ends June 30, 2002 but renews automatically for successive one-year periods
until either party gives 180 days written notice of its intention to terminate
the agreement. Under the agreement, Mr. Ran will receive an annual base salary
of $75,000, annual bonuses as determined by the compensation committee of the
Board of Directors in its sole and absolute discretion and is eligible to
participate in all executive benefit plans established and maintained by the
Company. Under the agreement, Mr. Ran has also agreed to a one-year
non-competition period following the termination of his employment. In March
1999, the Company also entered into an employment agreement with Dvir Langer
providing for his employment as vice president-sales and corporate development
with an annual minimum base salary of $60,000. Mr. Langer's employment commenced
on May 14, 1999. He resigned on July 19, 1999, and his duties have been assumed
by Mr. Ran.
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4. FIXED ASSETS
June 30, 1999
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Office equipment $ 26,620
Automobiles 64,419
Leasehold improvements 17,206
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Total fixed assets 108,245
Less: accumulated depreciation (28,866)
---------
Fixed assets, net of accumulated depreciation $ 79,379
=========
5. INITIAL PUBLIC OFFERING
On May 13, 1999 the Company's initial public offering was declared effective and
trading in the Company's common shares commenced on the Nasdaq SmallCap Market.
An aggregate of 1,325,000 common shares were sold in the offering, of which
1,250,000 common shares were sold by the Company and 75,000 common shares were
sold by Assaf Ran. The initial public offering for the common shares sold in the
offering was $6.50 and the net proceeds to the Company from the sale of its
common shares, after payment of underwriting discounts and commissions and other
expenses related to the offering of $1,693,210, were $6,431,790. In addition,
Mr. Ran repaid a loan of $295,262 owed to the Company out of the net proceeds he
received from the sale of his common shares. Prior to the initial public
offering there was no public market for any of the Company's securities.
6. ACQUISITIONS
In connection with the initial public offering, the Company entered into an
Exchange Agreement with Dapey Assaf-Dapey Zahav, Ltd. ("DAZ"), Dapey
Assaf-Hamadrikh Leassakim Israelim Be New York, Ltd. ("DAH") and the
shareholders of DAZ and DAH. Pursuant to the Exchange Agreement, on May 11, 1999
the shareholders of DAZ and DAH exchanged all of their common shares in DAZ and
DAH, as the case may be, for the common shares of the Company and DAZ and DAH
became wholly owned subsidiaries of the Company. The exchange has been accounted
for under the purchase method of accounting, resulting in a "step up" in the
basis of the Company's assets to the extent of the interests of the minority
shareholders. The value of the minority interest is approximately $1,393,000
(assuming a 10% discount from the initial public offering price) and has been
allocated among the assets of the Company based on their relative fair market
values. Of this amount, approximately $42,000 has been allocated to the
Company's tangible assets, $350,000 has been allocated to the Company's
trademarks, trade names and other intellectual property and $1,000,000 million
has been allocated to goodwill. The amounts allocated to the Company's
intellectual property and
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goodwill are being amortized on a straight-line basis over 25 years, or
approximately $54,000 per year.
7. 1999 STOCK OPTION PLAN
Immediately prior to its initial public offering, the Company adopted the DAG
Media, Inc. 1999 Stock Option Plan (the "Plan") reserving 124,000 common shares
of the Company for issuance upon exercise of stock options granted pursuant to
the Plan. Under the terms of the Plan, the exercise price of options granted
under the Plan may not be less than the fair market value on the date of grant
and the options may vest over a period not to exceed ten years. Stock options
under the Plan may be awarded to officers, key-employees, consultants and
non-employee directors of the Company. Under the Plan, every non-employee
director of the Company will be granted 7,000 options upon first taking office.
The objectives of the Plan include attracting and retaining key personnel,
providing for additional performance incentives and promoting the success of the
Company by increasing the efforts of such officers, employees, consultants and
directors. The Plan is the only plan that the Company has adopted with stock
options available for grant.
8. SUBSEQUENT EVENTS
On July 19, 1999, the Company entered into an employment agreement with Orna
Kirsh, providing for her employment as chief financial officer through July 19,
2001 at a base salary of $100,000. The agreement with Ms. Kirsh renews
automatically for successive one-year periods until either party gives 14 days
written notice of its intention to terminate the agreement.
In August 1999, the Company announced that its Board of Directors approved a
plan to repurchase up to 150,000 common shares of the Company within the
upcoming year.
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<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition and
results of operations should be read in conjunction with our unaudited
consolidated financial statements and notes thereto contained elsewhere in this
report. This discussion contains forward-looking statements based on current
expectations that involve risks and uncertainties. Actual results and the timing
of certain events may differ significantly from those projected in such
forward-looking statements.
We currently publish and distribute two yellow page directories, the Jewish
Israeli Yellow Pages and the Master Guide, in print and on the worldwide web.
These directories are distributed throughout the New York metropolitan area and
northern New Jersey. In addition, to give added value to users of and
advertisers in our directories, we also operate the Jewish Referral Service and
a "portal" web site, www.porty.com.
On May 12, 1999, we launched NewYellow, a general interest, English only yellow
page directory that competes directly with the Bell Atlantic Yellow Pages in New
York City. Currently, NewYellow is available online at our web site and we
expect that the first edition of NewYellow will be available in print by June
2000. We have recently opened two new sales offices in Manhattan that are
dedicated exclusively to NewYellow ad sales and we expect a third sales office
to be opened soon.
Our principal source of revenue derives from the sale of ads for our
directories. Our advertising rates for new advertisers have increased
approximately 20% to 30% a year since 1990. However, we believe it is unlikely
that this trend will continue. Any further increases in our advertising rates
would reduce the disparity between our rates and those of the Bell Atlantic
Yellow Pages and may cause some of our advertisers to stop advertising in our
directories.
Advertising fees, whether collected in cash or evidenced by a receivable,
generated in advance of publication dates, are recorded as "Advanced billings
for unpublished directories" on our balance sheet. Many of our advertisers pay
the fee over a period of time. In that case, the entire amount of the deferred
payment is booked as a receivable. Revenues are recognized at the time the
directory in which the ad appears is published. In the case of NewYellow, a
portion of the advertising fee is allocated to internet advertising, and is,
therefore, recognized when the ad is published in the online version of
NewYellow. Similarly, costs directly related to the publication of a directory
in advance of publication are recorded as "Directories in progress" on our
balance sheet and are
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recognized when the directory to which they relate is published. All other costs
are expensed as incurred.
The principal operating costs incurred in connection with publishing the
directories are commissions payable to sales representatives and costs for paper
and printing. Generally, advertising commissions are paid as advertising revenue
is collected. However, in connection with NewYellow, we pay commissions to our
sales representatives before we collect the related advertising revenue. We do
not have any agreements with paper suppliers or printers. Since ads are sold
before we purchase paper and print a particular directory, a substantial
increase in the cost of paper or printing costs would reduce our profitability.
Administrative and general expenses include expenditures for marketing,
insurance, rent, sales and local franchise taxes, licensing fees, office
overhead and wages and fees paid to employees and contract workers (other than
sales representatives).
Results of Operations
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Net advertising revenues
Net advertising revenues for the quarter ended June 30, 1999, were $282,909 of
which approximately $176,000 was attributable to the publication of the second
edition of the Master Guide directory in June 1999 and approximately $106,000
was attributable to NewYellow internet advertising. For the three months ended
June 30, 1998 we did not recognize any advertising revenues because we did not
publish any directories during that period nor were any of our revenues
attributable internet advertising sales.
Publication costs
Publication costs for the quarter ended June 30, 1999 were $35,970. There were
no publication costs for the same period in 1998.
Selling expenses
Selling expenses for the quarter ended June 30, 1999 were $45,697. There were no
selling expenses for the corresponding period in 1998.
Administrative and general costs
Administrative and general expenses for the quarter ended June 30, 1999 were
$183,212 compared to $213,907 for the same period in 1998, a decrease of 14.3%.
This decrease was attributable to the fact that we no longer out-source the
collection of our accounts receivable.
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Interest income, net
For the quarter ended June 30, 1999, we had net interest income of $40,959
compared to net interest income of $723 for the quarter ended June 30, 1998.
This increase was attributable to the investment of the net proceeds of our
initial public offering.
Earnings (loss) before provision for income taxes and equity income
Earnings before provision for income taxes and equity income for the quarter
ended June 30, 1999 were $58,989 as compared to a loss of $213,184 for the
quarter ended June 30, 1998. The increase was attributable to the revenues
realized in the quarter ended June 30, 1999.
Provision (benefit) for income taxes
Provision for income taxes for the quarter ended June 30, 1999 was $12,913
whereas for the quarter ended June 30, 1998 we recorded a tax benefit of
$108,000. This change was attributable to the operating income realized in the
three months ended June 30, 1999 compared to the operating loss for the quarter
ended June 30, 1998.
Equity in earnings of affiliate
Immediately prior to our initial public offering, DAH became our wholly owned
subsidiary. Consequently, we had no equity in earnings of affiliate for the
quarter ended June 30, 1999. For quarter ended June 30, 1998 equity in earnings
of affiliate was $2,566.
Net income (loss)
Net income for the quarter ended June 30, 1999 was $46,076 compared to a loss of
$102,618 for the corresponding period in 1998. As a percentage of net
advertising revenues, net income for the quarter ended June 30,1999 was 16.3%.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net advertising revenues
Net advertising revenues for the six months ended June 30, 1999 was $2,268,781
compared to $986,612 for the six months ended June 30, 1998, an increase of
130%. The increase was primarily attributable to: (1) increased advertising
revenue with respect to the publication of the February 1999 issue of the The
Jewish Israeli Yellow Pages, (2) publication of the second edition of the Master
Guide directory in June 1999, (3) recognition of revenues relating to internet
advertising sales and (4) an overall increase in our advertising rates. In the
prior comparable period, we neither published a Master Guide directory nor
recognized revenue related to internet advertising sales.
Publication costs
Publication costs for the six months ended June 30, 1999 were $330,769 compared
to $226,557, for the corresponding period in 1998, an increase of 46.0%.
However,
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as a percentage of net advertising revenues, publication costs were 14.6% in the
1999 period compared to 23.0%, in the 1998 period. The increase in publication
costs reflects the fact that we published two directories in the first half of
1999 compared to only one directory in the first half of 1998. The decrease of
publication costs as a percentage of net advertising revenues reflects
additional advertising revenues.
Selling expenses
Selling expenses for the six months ended June 30, 1999 were $619,782 compared
to $335,042 for the corresponding period in 1998, an increase of 85.0%. As a
percentage of net advertising revenues, selling expenses decreased to 27.3% from
34.0%. The increase in selling expenses was attributable to the increase in net
advertising revenues but was offset, in part, by a reduction in the rate of
commission payable to our sales representatives.
Administrative and general costs
Administrative and general costs for the six months ended June 30, 1999 were
$501,999 compared to $363,802 for the same period in 1998, a increase of 38.0%.
The increase was primarily attributable to an increase in the expense for
uncollectible receivables to $231,000 for the six months ended June 30, 1999
from $41,000 for the six months ended June 30, 1998. On the other hand, certain
other administrative and general costs decreased. For example, collection costs
decreased by $22,000 as a result of our decision not to outsource that function
any longer.
Interest income, net
For the six months ended June 30, 1999 we had net interest income of $43,062
compared to net interest income of $1,309 for the six months ended June 30,
1998. This increase was attributable to the investment of the net proceeds of
our initial public offering.
Earnings (loss) before provision for income taxes and equity income
Earnings before provision for income taxes and equity for the six months ended
June 30, 1999 were $859,293 as compared to $62,520 for the six months ended June
30, 1998. This increase is directly attributable to the growth in revenues.
Provision for income taxes
Provision for income taxes for the six months ended June 30, 1999 and June 30,
1998 were $405,913 and $30,000, respectively. The increase in the provision for
income taxes was directly attributable to the increase in operating income.
Equity (loss) in earnings of affiliate
Immediately prior to our initial public offering, DAH became our wholly owned
subsidiary. Accordingly, for the six months ended June 30, 1999 we recorded a
loss with respect to the earnings of DAH of $2,654, all of which was incurred in
the first
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quarter. For six months ended June 30, 1998 equity in earnings of affiliate was
$11,333.
Net income
Net income for the six months period ended June 30, 1999 increased to $450,726
from $43,853 for the corresponding period in 1998. As a percentage of net
advertising revenues, net income for the six month period ended June 30, 1999
increased to 19.9% from 4.4% in the corresponding period in 1998.
Liquidity and Capital Resources
Until our initial public offering, our only source of funds was cash flow from
operations, which has funded both our working capital needs and capital
expenditures. We have no debt or credit facilities. Generally advertising fees,
whether collected in cash or evidenced by a receivable, are generated before the
publication of the related directory and before many of the costs directly
associated with publishing the related directory are incurred.
As a result of our initial public offering in May 1999, we received proceeds of
approximately $6.4 million net of underwriting discounts and commissions and
other expenses related to the offering of approximately $1.7 million. Assaf Ran,
our president, chief executive officer and principal shareholder, repaid a loan
of $295,262 out of the proceeds from the sale of his common shares in the
offering. These funds were deposited in an interest bearing money market
account.
The net proceeds of the public offering will be used to pay our sales
representatives commissions on ad sales for NewYellow, for marketing expenses
for NewYellow, for the cost of printing and distributing NewYellow, for
marketing and developing our web site and online services and for other
operating expenses that are expected to increase as we expand our business.
We do not have any material commitments under any leases, sales agency
agreements or employment agreements, other than those of the employment
agreements with Assaf Ran and Orna Kirsh. Those agreements call for annual
salaries of $75,000 and $100,000 respectively. Mr. Ran's contract runs through
June 30, 2002, and Ms. Kirsh's agreement expires on July 19, 2001. We had
entered into an employment agreement with Dvir Langer. However, Mr. Langer
resigned in July 1999. We do not have any severance obligations to Mr. Langer.
At June 30, 1999 we had cash and cash equivalents of $7,174,054 and working
capital of $7,367,413 as compared to cash and cash equivalents of $95,280 and
working capital of $88,139 at June 30, 1998.
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Net cash provided by operating activities was $142,927 for the six months ended
June 30, 1999. For the comparable 1998 period, net cash used in operating
activities was $25,051.
Net cash provided by investing activities was $83,929 for the six months ended
June 30, 1999. For the comparable 1998 period, net cash used in investing
activities was $37,251. Net cash provided by investing activities in the six
month period ended June 30, 1999 is primarily derived from the result of our
acquisition of the 50% interest in DAH that we did not previously own
immediately prior to our initial public offering.
Net cash provided by financing activities for the six months ended June 30, 1999
was $6,637,013 consisting primarily of the net proceeds of our initial public
offering and the proceeds from the repayment of Mr. Ran's loan. For the
comparable 1998 period net cash provided by financing activities was $24,841.
We anticipate that our current cash balances together with our cash flows from
operations will be sufficient to fund the production of our directories, and the
maintenance of our web site as well as increases in our marketing and
promotional activities for the next 12 months. However, we expect our working
capital requirements to increase significantly over the next 12 months as we
continue to market NewYellow and continue to expand our on-line services.
Year 2000 Compliance
The "Year 2000" problem is the result of computer programs being written using
two digits, rather than four, to define the applicable year. Computers, programs
and microprocessors that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, or not recognize that date at
all, which could result in major systems failures or miscalculations. Year 2000
problems experienced by us or our suppliers, could adversely impact our ability
to service our customers or otherwise carry on our business, including causing
interruptions in the operation of our web site, customer billing, and invoicing
and data interfaces to and from these systems. We have not yet developed a
contingency plan to address situations that may result if our suppliers or we
are unable to achieve Year 2000 compliance. The cost of developing and
implementing this kind of plan, if necessary, could be material.
We believe, based upon evaluation by our own staff and an outside consultant,
that substantially all of our existing systems, software and hardware are Year
2000 compliant. The possibility exists that, despite assurances given by our
vendors and suppliers, and our own internal assessment, our systems may contain
undetected errors or defects relating to the Year 2000 problem. If these systems
are not Year 2000 compliant, on January 1, 2000 they may either malfunction or
shut down completely. In either case, historical data critical to our business,
operations and financial condition may be temporarily lost forcing us to
discontinue operations for a
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significant period of time until the lost data are retrieved or recreated, if
possible. We may also have to expend significant amounts of capital to recreate
the lost data and restore our computer systems to working order, which could
force us to delay or discontinue our expansion plans.
During the third quarter of 1999 we plan to contact the banks, utility
companies, telecommunications and transportation providers and material
suppliers on whom we rely, including HaMakor Printing, the printer we use to
publish our directories, to assess their compliance with Year 2000 related
issues. Initially, we plan to send them letters asking them if they are Year
2000 compliant and, if not, when they expect to be. If we do not receive answers
to these inquires, or if the answers we receive are unsatisfactory, we will
evaluate our alternatives at that time. Such alternatives would include
switching to new suppliers who are Year 2000 complaint.
In particular, we must confirm that HaMakor Printing is Year 2000 complaint. If
HaMakor Printing is not Year 2000 compliant, then we will assess whether it's
failure would affect it's ability to print our February 2000 Jewish Yellow Pages
directory. If it does, we will have to find a new printer. While we believe that
we will be able to find a new printer relatively quickly, we cannot be certain
that a new printer will be willing or able to provide us with the same level of
pricing, service and quality as HaMakor.
At the present time, we do not anticipate that these inquires will involve any
significant cost and expense. However, this may change as we develop new
information. We plan to use our administrative staff to handle these inquires.
If the issues become too technical, we may retain the services of a Year 2000
consultant to advise us.
Forward Looking Statements
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking
statements are typically identified by the words "believe", "expect", "intend",
"estimate" and similar expressions. Those statements appear in a number of
places in this report and include statements regarding our intent, belief or
current expectations or those of our directors or officers with respect to,
among other things, trends affecting our financial conditions and results of
operations and our business and growth strategies. Such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. Actual results may differ materially from those projected,
expressed or implied in the forward-looking statements as a result of various
factors (such factors are referred to herein as "Cautionary Statements"),
including but not limited to the following: (i) our limited operating history,
(ii) potential fluctuations in our quarterly operating results, (iii) challenges
facing us relating to our rapid growth, (iv) our dependence on a limited
15
<PAGE>
number of suppliers and (v) our ability and those of third parties, including
customers or suppliers, to adequately address the Year 2000 issue. The
accompanying information contained in this report, including the information set
forth under "Management's Discussion and Analysis of Financial Condition and
Results of Operations", identifies important factors that could cause such
differences. Such forward-looking statements speak only as of the date of this
report, and we caution potential investors not to place undue reliance on such
statements. We undertake no obligation to update or revise any forward-looking
statements. All subsequent written or oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the Cautionary Statements.
16
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
In May 1999, we completed an initial public offering of 1,325,000 common shares
(the "IPO"), of which we sold 1,250,000 common shares and Assaf Ran, our
president, chief executive officer and principal shareholder, sold 75,000 common
shares. The common shares were sold for $6.50 each. Net proceeds from the sale
of our common shares, after expenses of the IPO, were $6,431,790.
We have not previously filed an initial report of sales of securities and use of
proceeds. We will report the following information in our quarterly and annual
filings until the proceeds have been fully used.
(a) Effective date of Registration Statement: May 13, 1999 (File No. 333-74203).
(b) The offering was declared effective May 13, 1999 and was consummated on May
18, 1999.
(c) The managing underwriters were Paulson Investment Company, Inc. and Redwine
& Company, Inc.
(d) Securities Sold:
(i) Common Shares - common shares par value $.001 per share
(ii) Representatives' Warrants - warrants convertible into 132,500 Common
Shares at a price of $7.80 per share. The warrants are exercisable
over the four year period beginning on the first anniversary of the
offering. These Warrants were issued to the underwriters in
connection with the IPO.
(e) Amount registered and sold:
(i) Common Shares - 1,523,750 common shares were registered; 1,250,000
Common Shares were sold for the account of the
17
<PAGE>
issuer and 75,000 common shares were sold for the account of Assaf
Ran, our president, chief executive officer and principal
shareholder.
(ii) Representative's Warrants - 132,500 warrants registered and issued
to the underwriters in connection with the IPO.
(iii) Common Shares issuable upon exercise of Representative's Warrants -
132,500 Common Shares registered.
(f) Gross proceeds to issuer: $8,125,000.
(g) Expenses incurred in connection with issuance of securities:
Underwriting discounts and commissions $ 731,250
Expenses paid to the underwriters $ 252,455
Other expenses $ 709,505
-----------
$ 1,693,210
(h) Net proceeds: $6,431,790.
(i) Amount of net offering proceeds used for the purposes listed below:
Temporary investments with maturities of
three months or less: $6,431,790
==========
Item 3. Defaults under Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27- Financial Data Schedule
(b) Reports on Form 8-K - none
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAG Media, Inc. (Registrant)
Date: August 13, 1999 By /s/ Assaf Ran
--------------------------------------
Assaf Ran, President
Date: August 13, 1999 By: /s/ Orna Kirsh
--------------------------------------
Orna Kirsh, Chief Financial and
Accounting Officer
19
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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